Tuesday, October 11, 2011

Global Debt Crisis to Help Dollar, But Nothing Else: Faber

Suffocating global debt problems and overreaching intervention programs will be good for the U.S. dollar but bad for asset prices otherwise, investment guru Marc Faber said.

The uneasy time for financial markets will lead to an extended period of high volatility—both up and down—for the markets as economies grow slowly, the author of the Gloom Boom and Doom report said in a CNBC interview.
His dollar call is based on the notion that investors will turn to the safety of the U.S. currency even as governments try to inject liquidity into the market to save the ailing financial system.
"Despite the fact that the (European Central Bank) and the European government will flood the market with liquidity to bail themselves out, global liquidity is tightening," Faber said. "Whenever global liquidity is tightening it is bad for asset prices but good for the U.S. dollar, as was the case in 2008."
The dollar has been on the rise recently against global currencies, gaining more than 5 percent since late August. The U.S. currency has posted a nearly 7 percent gain against the euro during the same period as policy makers have struggled to come up with a solution to the Greek debt crisis.
However, a strong dollar for several years has been poison for risk assets, particularly a stock market that has come to depend on a weak currency to boost exports as domestic consumption has lagged.
For Faber, government meddling in the free markets is one of the primary reasons why growth will lag and recession looms.
"We've had far too many interventions in the Western world where the share of total economy that goes to government and is government-sponsored has grown," he said. "That essentially makes it very difficult for the Western world to grow sustainably...I don't see how the Western world including the U.S., Japan and Western Europe can grow. They're going to stagnate."
Faber suggested that Occupy Wall Street protesters "go to Washington and occupy the Federal Reserve along the way."
"We have expansionary fiscal policies, we have expansionary monetary policies but we have restrictive regulatory policies and it curtails any initiative by the small businessman and the large businessman," he said. "He doesn't employ and invest capital in the U.S. He does that in China or somewhere else in the world where the regulatory environment is more favorable."